The Mind-Blowing Cost of Patent Trolling

Patent trolling—buying up vague or broad patents and then suing any business that inadvertently violates its intellectual property—is the scourge of tech firms. As was reported on an excellent recent episode of This American Life, no one will wants to call himself a patent troll. Instead, those companies that are plaintiffs in such suits claim to be protecting the property rights of innovators.

Now, a paper called “The Private and Social Costs of Patent Trolls” attempts to tally up the squandered funds—and see where they ended up. Ars Technica says, “[P]atent trolls (‘non-practicing entity’ is the clinical term) have cost publicly traded defendants $500 billion since 1990.” In just the last four years, the average cost is $84 billion—“more than a quarter of US industrial research and development spending during those years.” That includes lost profits as well as costs to defendants. James E. Bessen and Michael J. Meurer of Boston University’s law school—who wrote the 2008 book Patent Failure—joined Jennifer Laurissa Ford for the paper. The trio arrived at the figures by looking at the stock market performance of publicly traded companies sued for patent infringement.

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Importantly, the authors write that very little of this money ends up in the pockets of scrappy geniuses who were cheated out of profits generated by their patents. “We conclude that the loss of billions of dollars of wealth associated with these lawsuits harms society. While the lawsuits increase incentives to acquire vague, over-reaching patents, they decrease incentives for real innovation overall.”